Epicor
IRVINE, Calif. (July 24, 2008) – Epicor Software Corporation (NASDAQ: EPIC), a
leading provider of enterprise business software solutions for the midmarket and divisions of
Global 1000 companies, today reported financial results for its second quarter ended June 30,
2008. All results should be considered preliminary pending the Company’s filing of its quarterly
report on Form 10-Q.
Epicor President and CEO Thomas Kelly commented, “Our second quarter financial
results, which delivered on the majority of the goals we set forth at the beginning of the quarter,
demonstrate the underlying strength of the core fundamentals of Epicor’s business. Total non-
GAAP revenue was in-line with our guidance, driven by solid sequential increases across every
revenue line when compared to the first quarter of 2008. We continued to generate excellent
cash flows, with cash flow from operations in excess of $35 million and free cash flow1 of
approximately $13 million. Additionally,” Kelly said, “we addressed the three issues that
negatively impacted our 2008 first quarter, correcting the events that led to shortfalls in our
consulting and international business and making some progress on improving our retail
performance.
“While we thought we had factored in an appropriate level of caution for our second
quarter non-GAAP earnings guidance,” Kelly continued, “we fell short due to lower than
expected retail license revenues, as we experienced lengthening retail sales for the first time
due to macroeconomic conditions. As such, we are prudently adjusting our second half outlook
to reflect a more cautious approach to our retail business, as well as to reflect additional
investment ahead of the launch of Epicor 9. We have already made and will continue to make
prudent and appropriate modifications to our cost model to ensure that we have the flexibility to
rapidly respond to market conditions and opportunities.”
GAAP Results: GAAP revenue for the 2008 second quarter was $127.9 million, with
net income of $1.3 million, or $0.02 per diluted share. This compares to 2007 second quarter
GAAP revenue of $105.7 million, and GAAP net income of $6.3 million, or $0.11 per diluted
share.
Non-GAAP Results2: Non-GAAP revenue for the 2008 second quarter was $130.6
million, with non-GAAP net income of $9.9 million, or $0.17 per diluted share. 2008 second
quarter non-GAAP net income excludes approximately $8.9 million of expenses related to
amortization of intangibles and $1.9 million in stock-based compensation, and includes the
benefit of $2.6 million of revenue that would have been recorded if NSB’s deferred revenue
would not have been adjusted to fair value as a result of purchase accounting. This compares to
revenue of $105.7 million, and non-GAAP net income of $12.0 million, or $0.21 per diluted
share, in the 2007 second quarter. 2007 second quarter non-GAAP net income excludes
approximately $4.4 million of expenses related to amortization of intangibles, $3.3 million in
stock-based compensation and a write-off of capitalized debt issuance costs in the amount of
$0.8 million that resulted from the Company’s pay-off of an outstanding term loan with proceeds
from the convertible financing in May 2007.
2008 Second Quarter Non-GAAP Revenue by Segment: 2008 second quarter
license revenue was $24.4 million, compared to license revenue of $25.1 million in the 2007
second quarter. License revenue was down year-over-year due primarily to lower than expected
retail license revenues. Consulting revenue was $41.2 million in the 2008 second quarter, which
excludes approximately $0.1 million in fair value adjustments for NSB purchase accounting,
compared to $34.1 million in the 2007 second quarter. Maintenance revenues for the 2008
second quarter hit another record growing to $51.2 million, which excludes approximately $2.5
million in fair value adjustments for NSB purchase accounting, compared to maintenance
revenue of $39.7 million in the same period in the prior year. Hardware and other revenue for
the 2008 second quarter was $13.9 million, up significantly from $6.8 million in the prior year’s
second quarter due to the timing of several large orders that were delivered.
Balance Sheet Summary
The Company’s balance sheet at June 30, 2008, included cash and cash equivalents of $132.4
million, bolstered by operating cash flow of more than $35 million during the quarter. The
Company’s total debt balance as of June 30, 2008, consists of $7.4 million in current debt
primarily related to the current portion of the Company’s outstanding term loan from the
Company’s credit facility, which helped to fund the NSB acquisition, and long-term debt of $380.1 million, consisting primarily of the $230 million obligation to holders of the Company’s
2.375% senior convertible notes and $150 million from the Company’s credit facility, currently
priced at 2.5% above LIBOR.
At the end of the 2008 second quarter, net accounts receivable was approximately $93.4
million. Days sales outstanding (DSOs) was 66, down significantly from 91 in the first quarter of
2008, due in part to strong cash collections of approximately $150 million. Deferred revenue at
the end of the 2008 second quarter was $91.0 million.
Second Quarter Highlights
· Added more than 150 new name customers
· Operating cash flows in excess of $35 million; Free cash flow1 of approximately $13
million
· Continued high customer retention rates of 94%
· Won back 177 customers to maintenance contracts, who had previously gone off
maintenance
· Demonstrated continued success in moving into upper end of midmarket with average
size of Top 10 software license deals of approximately $480,000 for the quarter
· Repurchased approximately 162,000 shares in the open market at an average price of
$8.03 per share
Business Outlook
2008 third quarter non-GAAP total revenues are expected to be $135 to $140 million.
Non-GAAP earnings per share for the 2008 third quarter is expected to be $0.18 to $0.22.
Hardware and other revenue for the 2008 third quarter is expected to be approximately $15
million.
Based on a more cautious outlook for the Company’s retail business and its expectation
for additional investment in front of the launch of Epicor 9, the Company is lowering its 2008 fullyear
guidance. 2008 full-year non-GAAP total revenues are expected to be $525 to $535
million. Non-GAAP earnings per share for 2008 is expected to be $0.75 to $0.85. Non-GAAP
software license revenue for the 2008 full-year is expected to be $110 to $120 million. Hardware
and other revenue for the 2008 full-year is expected to be $42 to $45 million. Free cash flow for
the 2008 full-year is expected to be $60 to $70 million.
The Company said that it is providing its 2008 third quarter and updated full-year
guidance on a non-GAAP basis. 2008 non-GAAP revenue guidance does not include an Moreexpected
fair value adjustment of deferred revenue as a result of NSB purchase accounting in
accordance with GAAP reporting. The Company currently expects to exclude approximately $8
million of revenue for the 2008 fiscal year that would have been recognized if NSB’s deferred
revenue had not been adjusted to fair value, less than $1 million of which will be license and
consulting revenue, with the remainder consisting of maintenance revenue.
The Company’s 2008 third quarter non-GAAP earnings per share guidance excludes
current expectations for third quarter amortization of intangible assets of approximately $8.5
million and third quarter stock-based compensation expense of approximately $2.8 million.
2008 third quarter non-GAAP earnings per share expectations assume a weighted average
share count of 59.3 million shares.
The Company’s 2008 full-year non-GAAP earnings per share guidance excludes current
expectations for full-year amortization of intangible assets of approximately $33.0 million, fullyear
stock-based compensation expense of approximately $10.0 million, the loss on settlement
of option contracts to hedge foreign currency risk on the purchase price of the acquisition of
NSB, an in-process research and development charge and restructuring and other charges.
2008 full-year non-GAAP earnings per share expectations assume a weighted average share
count of 59.3 million shares.
Earnings Conference Call
The Company will hold an investor and analyst conference call today at 5:00 p.m.
Eastern Time/2:00 p.m. Pacific Time.
When: Thursday, July 24, 2008
Time: 2:00 p.m. PT
Dial in: +1 (800) 524-3357, outside the U.S. +1 (913) 312-0648
Conf ID: Epicor 2008 Second Quarter Earnings Call
Webcast: http://ir.epicor.com
Source: Epicor
